Barclays 2011 Annual Report Download - page 80

Risk management
Risk factors continued
The UK Government published its response to the ICB recommendations
in December 2011 and indicated that primary and secondary legislation
relating to the proposed ring-fence will be completed by May 2015, with
UK banks and building societies expected to be compliant as soon as
practicable thereafter, and the requirements relating to increased
loss-absorbing capacity of ring-fenced banks and UK-headquartered
global systemically important banks will be applicable from 1 January
2019. Changes to the structure of UK banks and an increase in the
amount of loss-absorbing capital issued by UK banks may have a material
adverse impact on the Bank’s and the Group’s results and financial
condition. It is also not possible to predict the detail of the implementation
legislation or the ultimate consequences to the Group.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA)
DFA will have an impact on the Group and its business. A significant
number of rules and draft rules have been issued through 2011. While the
impact of this rule-making will be substantial, the full scale of this impact
remains unclear as many of the provisions of the Act require rules to be
made to give them effect and this process is still underway. Barclays has
taken a centralised approach to monitoring this process and to ensuring
compliance with the rules that are developed as a result.
Recovery and resolution plans
The strong regulatory focus on resolvability has continued in 2011, both
from UK and international regulators. The Group has been engaged, and
continues to be engaged, with the authorities on taking forward recovery
planning and identifying information that would be required in the event
of a resolution. The Group will be required to prepare an initial plan for the
UK and US regulators in the first half of 2012.
Any future regulatory changes may restrict the Group’s operations,
mandate certain lending activity and impose other, significant compliance
costs. For further information see Supervision and Regulation (pages 154
to 158).
Legal risk
The Group is subject to a comprehensive range of legal obligations in all
countries in which it operates and so is exposed to many forms of legal
risk, which may arise in a number of ways: (i) business may not be
conducted in accordance with applicable laws around the world; (ii)
contractual obligations may either not be enforceable as intended or may
be enforced in an adverse way; (iii) intellectual property may not be
adequately protected; and (iv) liability for damages may be incurred to
third parties harmed by the conduct of the Group’s business. The Group
also faces risk where legal proceedings are brought against it. The Group
is, and may in the future be, involved in various disputes, legal proceedings
and regulatory investigations in various jurisdictions, including in the US.
Furthermore, the Group, like many other financial institutions, has come
under greater regulatory scrutiny in recent years and expects that
environment to continue particularly as it relates to compliance with new
and existing corporate governance, employee compensation, conduct of
business, anti-money laundering and anti-terrorism laws and regulations,
as well as applicable international sanctions regimes.
Key legal risks to which the Group was exposed during 2011 have included
litigation in relation to:
– Lehman Brothers Holdings Inc;
– American Depository Shares;
– US Federal Housing Finance Agency and Other Residential Mortgage-
Backed Securities; and
– Devonshire Trust.
For further information see Legal Proceedings (pages 248 to 249).
Payment protection insurance (PPI)
During 2011 Barclays agreed with the FSA that it would process all
on-hold and any new complaints from customers about PPI policies that
they hold. Barclays also announced that, as a goodwill gesture, it would
pay out compensation to customers who had PPI complaints put on hold
during the judicial review. Barclays took a provision of £1bn in the second
quarter of 2011 to cover the cost of future redress and administration. For
further information see Provisions (pages 246 to 247).
CyberSecurity risk
Barclays recognises the growing threats from cyberspace to its systems,
including in respect of customer and its own information held on them
and transactions processed through these systems. The implementation
of measures to manage the risk is involving increasing investment and use
of internal resources. However, given the increasing sophistication and
scope of potential attacks from cyberspace, it is possible that in the future
such attacks may lead to significant breaches leading to associated costs
and reputational damage.
The Group has invested for many years in building defences to counter
these threats and continues to do so, recognising that this is an area of
risk that changes rapidly and requires continued focus.
To date the Group is not aware of any significant breaches of its systems
from cyberspace.
Taxation risk
Taxation risk is the risk that the Group suffers losses arising from
additional tax charges, financial penalties or reputational damage
associated with failure to comply with procedures required by tax
authorities, changes in tax law and the interpretation of tax law.
The Group is subject to the tax laws in all countries in which it
operates, including tax laws adopted at an EU level, and is impacted
by a number of double taxation agreements between countries.
HMRC, being the Group’s primary taxation authority, recently took the
unusual step of issuing a public statement that the Government was
drafting retrospective tax legislation. Such steps add to the need to
closely monitor changes in the way in which HMRC approaches the
application of its Code of Practice for Taxation of Banks. For all tax
jurisdictions, within which the Group operates, we continue to monitor the
potential impact of proposed and recently enacted taxes aimed at banks.
In 2011 the Group continued to settle open tax issues in a number of
jurisdictions and in meeting its tax obligations made global tax payments
totalling £6.4bn. The profit forecasts that support the Group’s deferred tax
assets, principally in the US and Spain, have been subject to close scrutiny
by management. For further information see the Financial review (pages
168 to 169) and Tax (pages 213 to 216).
78 Barclays PLC Annual Report 2011 www.barclays.com/annualreport